European banks are setting up a huge new oil-backed loan for Angola, one of the most corrupt and impoverished countries in the world. The deal will further mortgage the country’s future oil income and undermine international efforts to make the government more accountable.
Documents seen by Global Witness,1 along with press reports, reveal that a syndicate of banks, led by French bank Calyon, is planning to lend around $2.25bn to Sonangol, the Angolan state oil company. A Chinese company is also involved as the buyer of the oil. The deal appears to be in part a refinancing of existing debt, but will include at least $800 million of new money for undisclosed use. 2
In 2004, Standard Chartered acted as the lead arranger in a similar, $2.35bn loan.3 Barclays, Calyon, Commerzbank, Deutsche Bank, KBC, Natexis, Royal Bank of Scotland and Portuguese bank Banco Espirito Santo were also involved and the same banks appear likely to participate in the new loan.
Oil is the main source of income for the Angolan government and with prices at record highs, total oil revenues for 2005 are estimated at around $6.88 billion.4 However, despite this wealth, Angola remains one of the world’s poorest countries, ranked at 160 out of 177 on the UN’s Human Development Index. Most Angolan citizens live on less than $2 per day and at least 45 percent of Angolan children are severely malnourished.5 Angola is also extremely corrupt, ranked 133 out of 145 countries in terms of corruption by Transparency International.6 The IMF found that, between 1997 and 2001, $8.45 billion of public money was unaccounted for (an average of 23% of GDP), and the Angolan government still has no transparent system for managing its oil money.7
At the heart of the problem lies the country’s huge indebtedness, currently standing at $9.5bn or half its GDP.4 The government continues to take out expensive commercial loans backed by oil rather than seeking cheaper loans from development banks, which would require a commitment to manage public money more transparently. Oil-backed loans are condemned by the IMF as detrimental to growth and inherently lacking in transparency, since the use of the funds is undisclosed. In the case of Angola, the World Bank has described the government's oil-backed lending as the core obstacle to the country’s development.8
Global Witness believes that effective and transparent management of the country’s vast oil wealth is the key to its future prosperity. The Angolan government should be seizing the opportunity presented by the current oil price hike to reduce its debt and invest in development. Instead, aided and abetted by Western banks, it appears to be seeking yet another expensive loan with no public oversight as to how the money will be used.
‘Global Witness believes that banks approached to participate in this loan should decline’ said Sarah Wykes of Global Witness. ‘This deal will further undermine international and domestic pressure on the Angolan government to use more transparent forms of borrowing and to ensure oil revenues are used accountably for the benefit of ordinary Angolan citizens. Ultimately, banks participating in this deal will be complicit in perpetuating the country’s chronic corruption and poverty’.
For more information contact Sarah Wykes (+44 7971 06 44 33) or Gavin Hayman (+44 207 562 6361 or +44 784 305 8756).
1. Global Witness investigates the links between the exploitation of natural resources and the funding of conflict and corruption. It is non-partisan in all its countries of operation. Global Witness was co-nominated for the 2003 Nobel Peace Prize for its leading work on ‘conflict diamonds’ and awarded the Gleitsman Foundation prize for international activism in May 2005.
2. See International Finance Review, Issue 1601, September 17 2005, p. 89; Trade & Forfaiting Review, Volume 8, Issue 4, September 23 2005, www.tfreview.com. The interest rate is 250bp over LIBOR.
3. See Trade Finance Magazine, September 2004, www.tradefinancemagazine.com; The Guardian, June 1 2004, www.guardian.com and Norton Rose Press Release, 12 August 2004, ‘Sonangol raises $2.25 billion in its largest ever oil-backed financing’.
4. See IMF Country Report for Angola, August 2005, http://www.imf.org/external/country/cog/index.htm
5. See IRIN, United Nations News Service, ‘Angola: Legacy of war, failed harvests combine to erode security’, September 12 2005, http://www.irinnews.org/report.asp?ReportID=49134&SelectRegion=Southern_Africa&SelectCountry=ANGOLA
6. See Transparency International’s 2004 Corruption Perceptions Index, available at www.transparencyinternational.com
7. See Global Witness, Time for Transparency, March 2004, p. 47.
8. See World Bank Report 29036-AO, February 16 2005, http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=details&eid=000090341_20050310101310
Press Release / Sept. 23, 2005